Well it forces them to either build a factory over here or you send it over in pieces and then "build" it over here. It gives Americans jobs either assembling their bikes or building more U.S. brand bikes by the reduced sales of over priced EU bikes.
Other countries give state money to companies letting them charge an artificial low price so look for lots of tariffs very very soon.
Good or bad.
Bad, really.
Everyone looks at the direct effect--you build a factory, your factory employs people. That doesn't mean "Net Creation of Jobs", but it's politically easy to point and say there are jobs here that weren't here before.
The trick is economics is really, really complex. Too complex to think about. Just take a hard look at money.
Money is essentially an intermediary for the trade of labor. If I make $20/hr and you make $10/hr, then I can work 1 hour and induce you to work 2 hours. (Note: this ignores business overhead (wage-labor cost), business profits as part of the fraction of price, taxes, and the like.) If we double
all of the wages, then ... well, I make $40 and you make $20, but I can still buy the same stuff because I still have the same buying power.
In concept, imagine 10 people work for $10/hr to make 5 chairs. That's $20 per chair. Each $10/hr worker has to expend 2 hours of labor to afford 1 chair, so a chair is purchased for $(2h). Now we reorganize their labor method. 10 people working $10/hr can make 10 chairs. That's $10 per chair, and each $10/hr worker works 1 hour to afford 1 chair--purchased for $(1h).
Say you want 2% inflation (the Fed actually targets this), and this progress occurs over 10 years. For the chair to still cost $20, the workers must make $20/hr; and for the chair's price to have 2% inflation, it must cost $24.38. At this point, the worker's wage must also be $24.38--1 hour, 1 chair. Interestingly, so long as the business profit margins don't increase, this means that wages must increase faster than inflation (22% inflation, 244% wage growth). This is why the median-income household spent 33% of its income on food in 1950, 16% in 1990, and 12.5% in 2015.
That doesn't even discuss things like debt, the use of inflation, fractional reserve, and other important mechanics.
With money being an exchange of labor, only so much can be--and is--exchanged in a given time frame. That is to say: the amount of money spent between January 2014 and June 2014 is roughly fixed, especially when accounted for in terms of trade of labor-hours. Money can shift around of course--savings and debt do that--and the end result must always account for labor induced versus labor required to produce products. Consumer income is used to purchase, and that revenue is used to pay wages and thus becomes the next round of consumer income.
That brings you to wage inequality. As we all know, a fixed minimum wage will decrease in purchasing power due to inflation. As a secondary effect, with businesses making the same profit margins (margins are usually a factor of things other than employee wage), the price of associated products decreases, and the number of goods consumers can purchase increases. This creates more jobs by spreading that proportion of income thinner--that is, it pays people less, and thus pays more people. Because low wages are crap, we have to true up and raise the minimum wage now and then; this also trues up jobs, and concentrates the income into fewer hands--fewer jobs. It's a necessary action in a minimum-wage system.
So how does this impact trade?
If you take a look at Men's and Boys's Cotton Trousers and Shorts, the import cost is $6.12 per pair. The price to import a 40-foot shipping container with 20,000 units from China to the United States is under $1,300, or 6.5 cents per pair; outsource labor is roughly $6.06 at a Chinese rate of $3.20/hr, or 1.89 hours.
MBCTS retail on average at $14.97 (rough data collected from Google; not important for a conceptual model, and I'm not trying to predict precise numbers). About half the price is actually domestic shipping (trucks); roughly 10% is business profits; a very tiny fraction is retail workers, because cashiers make 998 scans per hour (0.83 cents per item) and inventory specialists stock shelves about that fast.
Generally, taxes and benefits cost 25%-40% of an employee's wage. Using 18% as a low figure, we can adjust these prices. At $8.25/hr minimum wage, American factory workers would produce these pants with a retail price of $27.25; whereas a $21/hr worker (GM line worker wage) would produce them at a price of $55.68.
Let's compare China, US-Minimum-Wage, and US-21 ($21/hr factory worker) in terms of hours of work an American expends to purchase a pair of trousers. We can compare the median American household income ($27/hr), the GM line worker ($21/hr), and minimum wage ($8.25/hr).
- China: 0.55h; 0.71h; 1.81h
- US-Minimum-Wage: 1.01h; 1.30h; 3.30
- US-21: 2.06h; 2.65h; 6.75h
So if we're paying factory workers $21/hr, then a minimum-wage worker has to work practically a full day to afford a pair of pants. Working longer hours to afford the same thing means we're poorer--and that's happening at every level here.
Secondary effects.
Because you're still working 40 hours, you obviously have less to spend. That means you can either buy fewer pants or fewer other things. If we're not buying pants, then we're not employing Americans to make those pants; if we're not buying other things, then same deal, unless those other things are Made in China, right?
...right?
...ehhh, no.
Remember I said retail workers make 998 scans per hour? Every 1,000 fewer items purchased means one cashier at WalMart is out of a job. Fewer items shipped means those fixed-sized freight trucks don't need to run, so truckers are out of a job, too. Inventory as well. Eventually, you've exceeded the size of a whole WalMart or such, and they consolidate sales to fewer retail centers, saving on infrastructure (electricity, roads) and other maintenance. A lot of jobs are lost in the process
even if people only stop buying Chinese-made things.
In rough calculation, eliminating Chinese imported trousers increases the net count of American jobs if you pay workers
less than $18/hr or thereabouts in this model, and decreases the net count of American jobs if you pay workers more than that. That is to say: paying American factory workers the same sort of wage as you pay GM factory workers will actually cause you to lose jobs when you fire your Chinese factory workers. The real magical number for creating vs losing jobs and the precise amount of working hours required to purchase things is probably different than the numbers I pulled here; the actual mechanism--that things will be more-expensive and that jobs are gained if we pay workers less and lost if we pay them more--is accurate. I make no claims to have a crystal ball to predict WalMart's prices and number of jobs we'll have if things like that change; I only know in what general direction the result will move.
So, maybe more, maybe fewer jobs; in any case, Americans at every income level
will become poorer. What could make this worse?
Well, it's funny. Malthusian growth is a thing.
We trend toward about 5% unemployment. As unemployment rises above 5%, the labor force and population start to grow more-slowly. College students go to grad school because they don't believe there are jobs for them (delaying tactic); older workers go into retirement earlier; and, yes, immigrant labor slows down and we bring fewer people into the country. We actually buff out the unemployment in a few short years--for the ~50,000 jobs we could gain by paying minimum-wage Americans to make trousers, it'd be scarcely a few months.
The other way works, too: when we have lower unemployment, people start exiting college early and entering the work force (good job offers), retiring later, and immigrating more for all the American employment opportunities. We push unemployment back up to the point where people start feeling the pressure and the workforce reaches an equilibrium.
So the job thing doesn't matter long-term; but the
poverty is permanent.
Oops?
What if they decide to reciprocate and slap a tariff on US bikes, that would hurt ZERO and any other manufacturers
It would hurt American manufacturers because we'd be unable to export and draw income in that way--the income allows us to employ more labor and thus supports the jobs we have.
If they have a trade advantage--that is, if Zero bikes are cheaper to import than to produce locally--then blocking those imports also makes them poorer in the above way. Basically we slap their right hand and they stab themselves in the left so they can smear their blood on us in retaliation.
If someone is aggressive to you in the global trade market, your best option is to ignore them. Let them slap tariffs on your exports; your own economy will be hurt if you reciprocate, so your optimal move is to keep open trade and import from them what's cheaper than making domestically. Eventually they'll all be poor and your country will be a shining beacon of wealth in the world, and maybe they'll get it through their thick skulls that import tariffs hurt their own domestic economy. There is actually no downside to keeping imports trade open, and a trade imbalance doesn't mean you're bleeding wealth out of your country--honestly, if it made you poorer to import,
why would you do it at all?
Anyway I should stop talking about economics. Nobody cares; in the real world, when you bring up economics, people retreat into magical fairy lands and argue entirely based on what they want to be true. I like the topic (a lot) but my experience has always been people get angry and don't want to listen to reason. When I tried to reason it out, everything I wanted to be true
stopped being true, and it was really uncomfortable, so I guess I get it; but I'm still bitter at the world.
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Topic: The latest big tariff idea (Read 755 times)